The world’s second-largest economy shrank 3.3 percent from the third quarter, today’s report showed. That compared with the U.S.’s 1 percent contraction and the euro-zone’s 1.5 percent decline, which was the sharpest in at least 13 years.

“There’s no doubt that the economy is in its worst state in the postwar period,” Economic and Fiscal Policy Minister Kaoru Yosano said in Tokyo. “The Japanese economy, which is heavily dependent on exports of autos, electronics and capital goods, has been severely hit by the global slowdown.”
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Capital investment fell 5.3 percent. Manufacturers cut production by a record 11.9 percent in the quarter, indicating they have little need to buy equipment as factories lay idle. Consumer spending, which accounts for more than half of the economy, dropped 0.4 percent, as exporters fired workers.
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The jobless rate surged to 4.4 percent in December from 3.9 percent, the biggest jump in four decades.

The decline is huge. Economies shrinking 2% is a large and fairly rare event. Shrinking over 10% is dramatically bad. The drop appears to be largely due to falling exports as consumer spending only dropped by .4 percent. Since 1930 the US economy has only fallen over 10% in a year 1932 and 1946. And real GDP has fallen over 2% only 5 times, the most recent time close to that large a fall was in 1982 with a 1.9% decline). Data from the United States Bureau of Economic Analysis. There is a good chance the US GDP will decline between 2-3% in 2009.

Related: Dreadful economic results in Japan suggest that things will only get gloomier - Over 500,000 Jobs Disappeared in November - Economic Fault: Income Inequality - Goldman Sachs Rakes In Profit in Credit Crisis (2007)

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Inquiring minds investigating the collapse in Europe note Euro-Zone Industrial Production Declines Steeply
Industrial production in the 17 countries that use the euro fell sharply in September as weak output across both the core and peripheral economies added to expectations for a poor third quarter gross domestic product print Thursday.

The global economy took another turn for the worse as Japan plunged into recession following two consecutive quarters of growth.
Please consider Japan’s economy shrinks annualized 3.5%.
Japan’s economy shrank an annualised 3.5 per cent between July and September, the steepest decline since the earthquake-hit first quarter of 2011, as exporters suffered big falls in shipments to key markets such as China and Europe.

Revised estimates of Japan's growth have been cut in half, from 1.4% to .7%. More importantly, Japan has a small but shrinking current account surplus (in spite of running a trade deficit for some time).
Once the current account surplus vanishes, and I believe it will, Japan will become somewhat dependent on foreigners to handle its budget deficit. Good luck with that at 0% interest rates.

Japan's 4th Quarter GDP Unexpectedly Contracts at 2.3% Annualized Rate
The Financial Times reports Japan’s GDP shrinks in fourth quarterFebruary 13, 2012
Japan’s economy shrank for the third time in four quarters between October and December, after floods in Thailand damaged production, and a strong yen and subdued overseas demand hurt exports.

Bloomberg reports Japan Machine Orders Fall More-Than-Estimated 7.1% as Yen Climbs
Japan’s machinery orders fell at the fastest pace in three months in December as a faltering global economy and gains by the yen dimmed the outlook for exporters.

Tokyo (AFP) - Japan's factory output fell by a less-than-expected 0.3 percent in March, data showed Thursday, but the still-weak statistics underscored an uncertain recovery in the world's number three economy.

With two consecutive quarters of contracting Gross Domestic Product, Japan is officially back in recession. GDP shrank 1.6% annualized.Unadjusted for price changes, the Japanese economy contracted an annualized 3 percent, the Cabinet Office said.None of this was "expected". We will explore "why" in a moment. First consider some headlines. Bloomberg: Japan Unexpectedly Enters Recession as Abe Weighs Tax.

Tokyo (AFP) - Toyota on Wednesday said it was on track to book a record $17.5 billion full-year net profit, as Japan's major automakers wrapped up a bumper earnings season, but the industry is facing headwinds from slower demand at home and in China.

The Bank of Japan (BOJ) has pledged to ramp up its asset-buying program as part of an aggressive stimulus package, in the latest effort by a major central bank to loosen monetary policy and spur economic growth.
Newly appointed Governor Haruhiko Kuroda committed the BOJ to buying about ¥84 trillion of Japanese government bonds this year – the equivalent of 17 percent of GDP – dwarfing its previous target of ¥46 trillion yen.

AMSTERDAM (AP) — Japan's benchmark stock index hit a 32-month high Friday as the yen continued to retreat against the dollar and investors cheered the new government's plans to boost the economy. Other stock markets edged up, notably in Germany where a survey showed growing business confidence.